T-Mobile COO: Why we make investments like free Netflix that 'seem crazy'

T-Mobile (TMUS) announced Wednesday that it’s giving a free Netflix (NFLX) account to anyone on a T-Mobile family plan—a value of $120 a year, per T-Mobile customer.

In the video above, I got to ask T-Mobile Chief Operating Officer Mike Sievert the hard questions: How can they afford this? Why is it only for family plans? And…when are you going to improve your service coverage?

Sievert acknowledged that the free Netflix represented a big investment.

“This is $120 a year back into our customers’ pockets. This is a big deal,” he said. Later, he added, “We make these big crazy investments, they seem crazy on the surface. But we know that if they result in customers coming to us and staying with us longer, we’ll get revenues from them.”

In this case, the offer for free Netflix is good for any family with two or more T-Mobile One lines ($40 per line, unlimited—taxes and fees included).

“Our two biggest competitors [AT&T and Verizon] are creating these carrier/content mashups,” says Clint Patterson, T-Mobile’s communications director. “They’re buying the content, buying the distribution, and their strategy is to bundle it. They want to ‘quad-play’ customers out of their minds, and charge more and more for it.” He notes, for example, that AT&T (T) “bundles DirecTV.”

This will be the year, he says, when Americans will watch more video on their phones, tablets, and laptops than on their TV sets, so it makes sense to offer its customers internet video instead of a cable or satellite bundle. “We feel like we’re leapfrogging the other carriers,” Patterson says. “They’re gonna be screaming at their management consultants, ‘How could this happen?’”